Lazydays Holdings, Inc. (LAZY) on Q4 2021 Results - Earnings Call Transcript
Operator: Thank you for standing by. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lazydays Holdings, Inc. Fourth Quarter and Full-Fiscal Year 2021 Financial Results Conference Call. . Debbie Harrell, Corporate Controller. You may begin your conference.
Debbie Harrell: Thank you, operator. Good morning, and thank you for joining us for our fourth quarter and year-end 2021 Financial Results Conference Call. I'm Debbie Harrell, Corporate Controller at Lazydays. We issued the company's earnings press release this morning. A copy of the earnings release is available under the Events and Presentations section of the Investor Relations page of our website and has been furnished as an exhibit to our current report on Form 8-K with the SEC. With me on the call today are Mr. Bob DeVincenzi, our Interim Chief Executive Officer; and Mr. Nick Tomashot, our Chief Financial Officer. As a reminder, please note that some of the information that you will hear today during our discussion may consist of forward-looking statements, including, without limitation statements regarding unit sales, revenue, gross margins, operating expenses, stock-based compensation expense, taxes, product mix shift and geographic expansion. Actual results or trends for future periods could differ materially from the forward-looking statements as a result of many factors. For additional information, please refer to the risk factors discussed in the Form 8-K filed with the SEC on March 10, 2022. We will also discuss non-GAAP measures of financial performance that we believe are useful for understanding the company's results, including EBITDA and adjusted EBITDA. Please refer to our earnings press release for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For the 3 months and year ended December 31, 2021 and 2020, the financial information presented represents the operating results of Lazydays Holdings, Inc. Now it is my pleasure to introduce Bob DeVincenzi who will provide some opening remarks for Nick Tomashot, who will share an overview of the 2021 4th quarter and full year financials.
Robert DeVincenzi: Thank you, Debbie. Having joined the Lazydays Board in October of 2021, and then appointed interim CEO on January 1 of this year, this is my first opportunity to address our shareholders and stakeholders, and I'm very pleased to do so. Let me start by providing a few financial performance highlights. The fourth quarter of our financial year again demonstrated solid performance and capped off a remarkable year for the RV industry and for Lazydays. In our preliminary fourth-quarter results press release that we issued on February 3, we indicated that our expected fourth quarter results would yield revenues of $322.5 million, adjusted EBITDA of $32.7 million and net income of $15.3 million. Today, we announced revenue results in line with our preliminary release of $322.5 million and an improved EBITDA and net income results of $34.3 million and $16.9 million, respectively. Nick Tomashot will provide more detail on our fourth quarter results as well as our 2021 full year fiscal results a bit later in the call. With regard to our growth strategy, in the fourth quarter, we announced plans to expand our existing footprint with an additional greenfield dealership location in Fort Pierce, Florida, which is our third location in Florida, and we announced a greenfield dealership to be located in Council Bluffs, Iowa to serve the greater Omaha, Nebraska market area. As I have become more deeply engaged in the operations of the business, I have been impressed with the leadership team and the partners that deliver the Lazydays customer experience in the 17 dealerships and service locations that we operate. The team continues to do a great job in moving the business ahead and dealing with the opportunities and challenges to 2021, and the current time frame has presented to the company and to the industry at large. We have all gotten more comfortable with being uncomfortable as our business conditions have changed, either from public health, increased and persistent levels of consumer demand, fluctuating inventory levels and other effects. We have refined our ability to be flexible and adaptable and these skills will be critical to Lazydays as we move through 2022 and beyond. I wanted to offer a few comments about our current first quarter 2022 period. A topic of much discussion in the industry is the balance of RV unit supply and consumer demand and the control of price and margin. Our industry partners, the OEMs, are working hard to return to normalized production levels, which in turn allows us to work -- to return to inventory levels appropriate for our customer demand. As you know, this is a complicated process and has not been and will not be seamless. Brands, models and product categories will restore at different rates. Towables are now approaching desired stock levels and inventories of higher-end towables, fifth wheel and motorized vehicles are improving but remain below historical levels and our desired levels given consumer demand. With a modestly improved availability of units, we continue to experience strong demand for our inventory. And we are presently experiencing margins in our Q1 2022 period, consistent with the fourth quarter of 2021. Although we, like most industry participants, have heard the industry reports on margins and the expectations of likely declines later in 2022. I will now turn the call over to Nick Tomashot, who will provide a more complete overview of 2021 fourth quarter and full year financial results.
Nicholas Tomashot: Thank you, Bob. Please note that unless stated otherwise, the quarter and fiscal year results comparisons are versus the same 3- and 12-month periods ended December 31, 2020. Revenues for the fourth quarter were $322.5 million, up $126 million or 64.1% from 2020. Revenue for the quarter from the sale of recreational vehicles, or RVs, was $291 million, up $114.4 million or 64.8%. Total RV unit sales, excluding wholesale units, were 3,211, up 1,082 units or 50.8%. Q4 revenue from the sale of new recreational vehicles was $174.7 million, up $57.3 million or 48.8%. New RV unit sales were 1,835, up 498 units or 37.2%. The average selling price of new RVs for the quarter was $95,200, up $8,200 or 9.4%. Q4 revenue from the sale of pre-owned RVs was $116.3 million, up $57.1 million or 96.6%. Pre-owned RV units sold, excluding wholesale units, were 1,376, up 584 units or 73.7%. The average selling price of pre-owned recreational vehicles was $81,400, up $10,400 or 14.6% versus the fourth quarter of 2020. Revenues in our other channels consist of sales of parts, accessories and related service, finance and insurance or F&I revenue as well as Campground and miscellaneous revenue. In total, revenue from these other lines of business was $31.5 million, up $11.5 million or 57.9% compared to 2020. The increase was driven by an F&I revenue increase of $8.2 million or 81.4% to $18.2 million, and parts and service revenue increase of $3.5 million or 37.5% to $12.7 million. Q4 gross profit, excluding noncash, last-in-first-out or LIFO adjustments was $87.6 million, up $42 million versus 2020. Gross margin, excluding LIFO adjustments, increased between the 2 periods to 27.2% compared to 23.2% in 2020, with the change driven by growth in all lines of business, including noncash LIFO adjustments, which had a net unfavorable swing between periods of $2 million compared to prior year. Gross profit for the quarter was $84.2 million, up $40 million or 90.4%. Excluding transaction costs, stock-based compensation and depreciation and amortization, SG&A for the quarter was $53.7 million, up $24 million compared to prior year. This increase is attributable to overhead associated with the Elkhart and Chicagoland, Indiana locations acquired, respectively, in October and December 2020. The Maryville, Tennessee dealership acquired in March 2021 and the Portland, Oregon, Vancouver, Washington and Milwaukee, Wisconsin dealerships acquired in August 2021 as well as the Nashville, Tennessee greenfield location, which opened in January 2021. SG&A as a percentage of gross profit ex-LIFO increased from 53.8% in Q4 2020 to 55.8% in 2021, reflecting the increased overhead from the acquisitions mentioned above. Amortization of stock-based compensation decreased $0.4 million and depreciation and amortization increased $0.9 million compared to prior year. Net income for the fourth quarter was $16.9 million as compared to $2.2 million in 2020. This was driven by improved RV sales and gross profit relative to overhead expenses previously discussed. Adjusted EBITDA for the quarter was $34.3 million, up $18.8 million or 121%. Adjusted EBITDA margin increased 270 basis points to 10.6% from 7.9% in 2020. Please refer to our earnings release for the table, which includes a reconciliation of net income to adjusted EBITDA. I'll now provide a summary of our 2021 full year year-end financial results. Revenue for the year was $1.2 billion, up $417.9 million or 51.1% versus 2020. Revenue from the sale of recreational vehicles was $1.1 billion for the year, up $382 million or 52.3%. RV unit sales, excluding wholesale units, were 14,270, up 4,250 units or 42.4%. Year-end gross profit, excluding LIFO adjustments, was $329.6 million, up $150.7 million versus 2020. Gross margin, excluding LIFO adjustments, increased between the 2 periods to from 21.9% in 2020 to 26.7% in 2021, driven by growth in all lines of business, including noncash LIFO adjustments, which had a net unfavorable swing of $4.9 million compared to prior year. Gross profit for the quarter was $324.8 million, up $145.8 million or 81.5% versus 2020. Excluding transaction costs, stock-based compensation and depreciation and amortization, SG&A for the year was $183.8 million, up $66.1 million compared to the prior year. The increase was due to overhead associated with 8 locations added in 2020 and '21 and increased performance wages as a result of the increased unit sales and gross profit for the year ended December 31, 2021. SG&A as a percentage of gross profit ex-LIFO decreased from 65.8% in 2020 to 55.8% in 2021, reflecting improved operating leverage. Amortization of stock-based compensation decreased $0.8 million, and depreciation and amortization increased $3.1 million compared to prior year. Adjusted EBITDA for the year, a non-GAAP financial measure was $144.9 million, up $86 million or 145.8% compared to 2020. This was driven by improved RV sales and gross profit relative to overhead expenses previously discussed. Adjusted EBITDA margin as a percentage of revenue increased for the year to 11.7% compared to 7.2% in 2020. Now turning to the December 31 balance sheet and our financial position. We had cash on hand of $98.1 million and net working capital of $109.3 million, with cash $34.6 million higher than December 31, 2020. This increase in cash includes proceeds from financing liabilities for leases of $26.2 million, proceeds from the exercise of warrants of $11.6 million and proceeds from the exercise of stock options of $30.7 million, offset by cash used for stock repurchases of $12 million. The change in cash also includes the impact of cash used to invest in growth initiatives, including 3 acquisitions as well as the payment of $4.8 million in dividends to the Series A preferred stockholders. At the end of 2021, we had $242.9 million in inventory, consisting of $177.7 million in new vehicles, $66 million in pre-owned vehicles, approximately $7.6 million in parts inventory and LIFO reserves of $8.4 million. As of December 31, 2021, we had no borrowings under our $25 million revolving credit facility, $10.1 million of term loans outstanding and $192.9 million in gross notes payable on our Floorplan facility. We also had approximately $2.7 million outstanding on notes payable related to acquisitions, $0.8 million of PPP loans outstanding and a mortgage on property of approximately $5.7 million. We have 1 additional item to discuss that we'll be disclosing in our 10-K filing and our review of internal controls, management identified a material weakness related to ineffective information technology general controls or ITGCs. We identified weaknesses in 2 areas: The first area was regarding program change management over certain IT systems that support the company's financial reporting processes. These controlled efficiencies were a result of our inability to systematically identify all changes made to our financial reporting system. Although we have a change process in place, system limitations prevent us from systematically being able to identify all changes made to our systems. In addition, we found that some users have the ability to facilitate changes beyond what was necessary for their specific job responsibilities. The second area was regarding the review of access of user permissions and separation of duties. Our current technology platform makes provisioning and maintenance of user permissions difficult to categorize and assess for possible conflicts that could weaken controls. Based on this material weakness, the company's management concluded that at December 31, 2021, the company's internal control over financial reporting was not affected. This material weakness did not result in any identified misstatements to our financial statements, and there were no changes to previously released financial results. Following identification of material weakness, and prior to filing this annual report on Form 10-K, we completed substantive procedures, expanding and strengthening our testing. Based on these procedures, we believe that our consolidated financial statements included in our Form 10-K have been prepared in accordance with U.S. GAAP and that the financial statements and other financial information included in our Form 10-K fairly present in all material respects the financial condition, results of operations and cash flows of the company as of December 31, 2021. Management has been designing and implementing and continues to implement measures intended to ensure that controlled efficiencies contributing to the material weaknesses are remediated. The remediation actions include: first, developing enhanced risk assessment procedures and controls related to changes in IT systems, including the development and deployment of reporting and tools that allow for improved controls and monitoring of changes in our IT environment; second, developing and maintaining documentation underlying ITGCs to promote knowledge transfer upon personnel and function changes; third, implementing an IT management review and testing plan to monitor ITGCs with a specific focus on systems supporting our financial reporting processes; fourth, designing and implementing role-based access and permissions supported by implementing technology that provides for improving controls and monitoring around assigning and changing the assignment of roles and permissions to users. And finally, fifth, we will be proving enhanced quarterly reporting on the remediation measures to the Audit Committee and the Board of Directors. We believe that these actions will remediate the material weakness. The weakness will not be considered remediated however, until the applicable controls operate for a sufficient period of time, and management has concluded through testing that these controls are operating effectively. We expect that the remediation of this weakness will be completed prior to the end of fiscal 2022. Thank you. And now I'd like to turn the call over to Bob DeVincenzi.
Robert DeVincenzi: Thanks, Nick. I wanted to address a couple of final topics before we open up the call for Q&A. First, let me address our strategy to continue to grow the business. As we have been in the past, we continue to be focused on both greenfield and acquisition opportunities to grow the Lazydays footprint and increase our contact with a growing number of RV enthusiasts across the country. Given our leaders transition, we are refining our pipeline of opportunities in target markets. With respect to our greenfield expansion methodology, we continue to identify and act on promising markets and expect to be in a position to make some additional announcements in the coming weeks. With regard to acquisitions of existing dealerships, we continue to evaluate these opportunities but are careful to maintain our focus on the operational and financial filters and metrics that we use to determine our interest. Seller expectations for price have been and are quite high and we continue to be very disciplined in evaluating deal flow. Lastly, let me address the topic of capital allocation. This topic remains a focus of our leadership team and the Board of Directors. As many of you know, on February 24, 2022, we announced the completion of our previously authorized common share buyback of up to $25 million in common stock. At the same time, we announced the authorization of an additional $45 million of buyback to be put in place through December 31, 2022. We will continue to allocate capital to various investments that support the long-term growth of Lazydays shareholder value. We are mindful of balancing investments in our core business to generate future cash flow growth with opportunities to invest through share buybacks. This balance will continue to be a focus of the leadership team and of the Board of Directors. We'd now like to open up the call for questions.
Operator: . The first question is from Fred Wightman of Wolfe Research.
Frederick Wightman: I wanted to follow up on the gross margin commentary that you had, Bob, at the start of the call. It sounds like you're seeing similar gross margins in the first quarter relative to the fourth quarter, but you also hinted at some expected softening later in the year. So could you just build out on that and maybe talk about how you think gross margins will trend as we move through the year and inventory hopefully normalizes a bit more?
Robert DeVincenzi: Yes. Fred, thanks for your question. It's a difficult and complex question to answer. I did provide the information about what we're currently seeing in the financial period thus far. And let me ask Nick to give a little bit more color from his perspective.
Nicholas Tomashot: Yes. I'm sure you're asking because Camping World commented that they were starting to see some margin compression in Q4. But so far, we haven't. But I will point out that we skew heavier towards motorized and the higher-end towable products. And those still haven't really reached the targeted inventory levels yet. So up to this point, we've been able to hang on to margins and maintain those. Of course, that will erode over time as the supply and demand gets back into balance. And I can't predict when that will be. I said, there's a lot of opinions about that. And I have one, but will not share.
Frederick Wightman: Fair enough. Could you guys just comment on sort of presold today? Maybe where that stands, either quarter-to-date or what you saw in the fourth quarter just relative to history, whether it's qualitative or quantitative?
Nicholas Tomashot: We haven't really disclosed that, but we have been and are maintaining what we see internally as record levels of units that are on order and not delivered. And that has been consistent and has .
Frederick Wightman: Okay. Great. And then if we just look at the inventory on the balance sheet exiting the fourth quarter, it looks like that was pretty big sequentially just to step up in 4Q versus 3Q. Could you give a bit more detail on sort of new versus used, how much of that seasonality, if you're comfortable with sort of where you stand today and how you discuss that...
Nicholas Tomashot: I would say, we purposefully, we're loading up on used and -- our mix was skewing and the inventory was skewing heavier towards uses, especially when the supply chain was tight. Now we're starting to see the new product come in. When we look at our inventory levels, we're not looking at absolute number of units or dollars. What we do is we monitor our turns or sell-through. And we're still seeing higher levels of turns than we typically would if we get to our appropriate inventory levels.
Frederick Wightman: Makes sense. And then just broader thoughts on discounting. I know that you guys have a little bit of a unique mix versus the industry, but are you seeing or hearing any incremental signs of discounting, whether that's a retail or from OEMs?
Nicholas Tomashot: No, but I think what I expect is we'll start to see things happen at different locations and different timing because we're in different markets that have different competitive composition, we'll see -- probably see that happening in some markets before others.
Frederick Wightman: Okay. And then just last one. Any thoughts on the RVIA's lowered wholesale production forecast. Do you think that that's prudent just based on what you're seeing in the market today?
Nicholas Tomashot: Personally, I prefer to have a production linked to demand as much as possible. Having lived through 2019, where there was too many units in stock, it's not -- it's detrimental to margins to have oversupply.
Operator: There are no further questions at this time. I will now turn the call over to Bob DeVincenzi for closing remarks.
Robert DeVincenzi: Great. Thank you all for your participation in our quarterly conference call. We look forward to updating you next quarter, and wish you all a good day. Thank you.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
